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Banks and federally chartered trust and loan companies are required to transfer to the Bank of Canada all unclaimed bank balances maintained in Canada in Canadian currency that have been inactive for a period of 10 years.

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Our currency has come a long way. And it’s going even further. The new polymer notes look and feel quite different, but they’re a good change for Canadians. They are highly secure, durable and innovative.

James Chapman

Assistant Chief

James Chapman is the Assistant Chief of the Financial Studies Division in the Financial Stability Department at the Bank of Canada. James received a Ph.D. in economics and a MSc in statistics from the University of Iowa in 2006 and joined the Bank of Canada as a senior analyst in that year. James’s primary research focus has been on payment and settlement related issues such as liquidity risk and credit risk in large-value payment systems and interbank markets. He has also recently become increasingly involved on research related to financial intermediation related topics such as shadow banking.

The Bank of Canada’s annual economic conference, held in October 2012, brought together experts from across Canada and around the world to discuss key issues concerning financial intermediation and vulnerabilities. The conference covered such topics as household finances and their relationship to financial stability, as well as bank regulation, securitization and shadow banking.

Using detailed loan transactions-level data we examine the efficiency of an overnight interbank lending market, and the bargaining power of its participants. Our analysis relies on the equilibrium concept of the core, which imposes a set of no-arbitrage conditions on trades in the market.

Central banks play a pivotal role in well-functioning payments systems by providing liquidity via collateralized lending. This article discusses the role of collateral and haircut policy in central bank lending, as well as the distinguishing features of the central bank’s policy relative to private sector practices. It presents a model that explicitly incorporates the unique role of central banks in the payments system and argues that central banks must consider how their haircut policies affect the relative price and liquidity of assets, the market’s asset allocation, and the likelihood of participants to default. Furthermore, under extraordinary circumstances, there is a rationale for the central bank to temporarily reduce haircuts or broaden the list of eligible collateral to mitigate the shortage of liquidity in the market.